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  • Martin Sosnoff

Whatever Can Go Wrong Normally Goes Wrong

Santa Claus is a bourgeoise myth. Assume any foolish trades you make will cost you money under “ Murphy’s Law” “Whatever can go wrong, will go wrong.”


Conversely, when you dot all the I’s and cross all T’s, you won’t necessarily make out. Wars, famine and inflation can smother good trading except more 2-year Treasuries. The sharply negative yield curve in 10-year Treasuries is a head scratcher that still has me stumped. We are talking nearly 50 basis points. 

Sosnoff’s rule is unless you can deal coherently with the negative yield curve in Treasuries, don’t play in the game. Learn something from financial history. It can turn volatile with prolonged negative cycles for stocks and bonds, as well.

My core belief is in valuation at a price/earnings ratio of 15 times forward 12-month numbers. Not the P/E of over 20 forward year’s projections. What we see today.  I’ve drawn the trendline at 15. This interval was filled with a bank recession that drove earnings below 10.

Only the misplaced take-off in tech houses drove P/E’s above 20 for a couple of years. Then, the crash in tech took us below 10 times earnings. (Too many burnt fingers all around!)

If you go back to when long term Treasuries yielded 4 to 5%, the corresponding multiplier on stocks stood at 16 times earnings, far below where we stand today. Unless you believe the FRB is on the verge of cutting interest rates more than 25 basis points you shouldn’t be in an aggressive construct.

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